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CIRCULAR No. 126/2004/TT-BTC OF DECEMBER 24, 2004 GUIDING THE IMPLEMENTATION OF THE GOVERNMENT’S DECREE No. 187/2004/ND-CP OF NOVEMBER 16, 2004 ON TRANSFORMATION OF STATE-OWNED COMPANIES INTO JOINT-STOCK COMPANIES

In furtherance of the Government’s Decree No. 187/2004/ND-CP of November 16, 2004 on transformation of State-owned companies into joint-stock companies (hereinafter called Decree No. 187/2004/ND-CP for short), the Finance Ministry hereby guides financial matters as follows:

I. GENERAL PROVISIONS

1. This Circular applies to State-owned companies that undertake equitization according to the provisions of Article 2 of Decree No. 187/2004/ND-CP and the Prime Minister’s Decision No. 155/2004/QD-TTg of August 24, 2004 promulgating the criteria, list and classification of State-owned companies and independent cost-accounting member companies of State corporations (hereinafter called enterprises for short).

2. Enterprises that fully meet the conditions for equitization must still be left with State capital (excluding the land use right value) after financial handling under the provisions of Section II of this Circular.

In cases where enterprises fail to meet the conditions for equitization, other forms of reorganization in accordance with law provisions shall apply; no more State capital shall be allocated for equitization.

3. Before conducting equitization, enterprises shall have to handle their financial problems according to current law provisions.

In the course of equitization, enterprises shall continue handling their remaining financial problems according to the provisions of Section II of this Circular till the time they are officially transformed into joint-stock companies.

4. The equitization-deciding agencies defined in Article 40 of Decree No. 187/2004/ND-CP shall set up Equitization Steering Boards to assist them in directing and organizing the equitization.

5. Enterprises may choose equitization forms according to the provisions of Article 3 of Decree No. 187/2004/ND-CP. Enterprises that wish to mobilize more capital for investment and development must issue more equities.

6. The time of valuing an enterprise is the time of closing its accounting books and making financial statements for determination of its value:

- In case of valuing enterprises by method of asset valuation, it is the end of the latest quarter preceding the time of issuance of the equitization decision, which, however, must be within 6 months as from the time of publicization of the enterprise value.

- In case of valuing enterprises by discounted cash flow method, it is the end of the latest year preceding the time of issuance of the equitization decision, which, however, must be within 9 months as from the time of publicization of the enterprise value.

7. The steps of performing the equitization-related jobs shall comply with the process promulgated together with this Circular (Appendix 1).

II. FINANCIAL HANDLING UPON EQUITIZATION

A. INVENTORY AND CLASSIFICATION OF ASSETS AND DEBTS

When receiving equitization decisions from competent agencies, enterprises shall have to organize inventory and classification of the assets they are managing and using at the time of enterprise valuation according to the following stipulations:

1. Inventorying and classifying assets:

1.1. To inventory, and properly determine the quantity and quality of, actual assets which enterprises are managing and using; to check the cash funds and compare bank deposit balances at the time of enterprise valuation; to determine asset and cash surplus or deficit as compared to accounting books, and analyze the reasons therefor.

1.2. To classify the inventoried assets into the following groups:

a/ Assets which enterprises need to use.

b/ Assets which enterprises have no need to use, stockpiled assets, assets awaiting liquidation under decisions of representatives of owners of the State capital at enterprises.

c/ Assets created from the reward fund and/or welfare fund (if any).

d/ Assets hired from outside, supplies and goods kept for others, received for processing or agency or as consignment.

2. Comparing, certifying and classifying debts, making detailed lists of debts of each kind according to the following stipulations:

2.1. Payable debts:

To clearly analyze undue debts, overdue debts, debt principals and interests, as well as payable debts which need not to be paid.

Payable debts which need not to be paid mean debts of creditors that no longer exist (dissolved or bankrupt enterprises or deceased creditors) or that do not show up to compare and recover their debts already overdue.

2.2. Receivable debts

a/ To clearly analyze receivable debts, which are recoverable or irrecoverable.

Receivable but irrecoverable debts must be accompanied with adequate documents proving that they are irrecoverable under the State’s current regulations on handling of outstanding debts.

b/ To review economic contracts so as to identify advance payments already made to goods suppliers and/or service providers, which, however, have already been fully accounted in the enterprises’ business expenses such as house rents, land rents, goods-purchase money, long-term insurance premiums, wages and salaries, etc. for incorporation into the value of to-be-equitized enterprises according to Clause 3, Article 11 of Decree No. 187/2004/ND-CP.

3. Organizing assessment and valuation of assets enterprises need to use according to the provisions of Part A, Section III of this Circular.

4. State-owned commercial banks shall, apart from complying with the above-mentioned stipulations, have to:

4.1. Inventory and compare customers’ borrowings and deposits as well as deposit certificates (bills, promissory notes, bonds) as follows:

a/ Inventory in detail each item based on accounting books.

b/ Compare and certify deposit balances of customers being legal persons; compare capital-borrowing dossiers with those of lending customers and certify amounts still owed by the banks.

c/ Compare savings deposits, personal deposits and deposit certificates not with customers but with the records. For a number of specific cases (with big deposit balances or disparities between accounting books’ figures and the records), a direct comparison with those of customers is required.

4.2. Compare assets being credit balances (including off-sheet balances) as follows:

a/ On the basis of credit dossiers of each customer, make lists of customers that have credit balances and their respective credit balance amounts, detailed to each credit contract.

b/ Compare data in credit dossiers with those in accounting books of their commercial banks; compare credit balances with customers one by one for their certification of their credit balance amounts.

In case of data disparity between credit dossiers and accounting books and customers’ certifications, commercial banks shall have to clarify causes of such disparity and determine the responsibilities of concerned organizations and individuals for handling according to the State’s current regulations.

4.3. Classify the outstanding receivable debts that fully meet the conditions for being handled under guidance of Vietnam State Bank.

B. FINANCIAL HANDLING

1. Before valuing enterprises

1.1. Assets

Basing themselves on the results of asset inventory and classification, enterprises shall handle their assets according to the provisions of Article 10 of Decree No. 187/2004/ND-CP, concretely:

a/ For surplus and deficit assets, to analyze and clarify their causes and handle as follows:

- For deficit assets, to determine responsibilities of organizations and individuals for material compensation payment under current regulations; the deficit asset value, after subtracting the compensation, shall be accounted into the business results.

- For surplus assets, if the surplus causes and owners of redundant assets cannot be identified, they shall be recorded as State capital increase.

b/ For unnecessary assets, stockpiled assets and assets awaiting liquidation, with the written approvals of representatives of the State capital owners, they shall be handled as follows:

- Liquidation and sale: The directors of enterprises shall have to direct the asset liquidation and sale according to current law provisions.

The revenues from, and expenditures on, asset liquidation and sale shall be accounted into the revenues and expenditures of enterprises.

- Transfer of assets to other units under decisions of representatives of capital owners. In case of transfer to units outside the ministries, localities or corporations, the agreement of the representatives of the State capital owners of the transferees is required.

Basing themselves on asset handover-receipt minutes, enterprises that transfer or receive assets shall record capital decrease or increase according to the asset value in the transferors’ accounting books. In cases where the transferees do not accept that value, the two sides shall negotiate the transfer prices. The differences between such prices and the prices recorded in the accounting books shall be accounted into the enterprises’ business results.

- By the time of valuing enterprises, unnecessary assets, stockpiled assets and assets awaiting liquidation which have not yet been handled shall not be accounted into the enterprise value. Enterprises shall continue handling these assets till the issuance of decisions on their value. By the time of issuance of decisions on their value, if there still exist assets not yet handled, enterprises shall have to preserve and transfer them to the Company Purchasing and Selling Outstanding Debts and Assets of Enterprises for handling according to current regulations. The Company Purchasing and Selling Outstanding Debts and Assets of Enterprises shall not resell these assets to enterprises.

c/ Assets being welfare works invested with welfare fund or reward fund sources shall be handled according to the provisions of Clause 3, Article 10 of Decree No. 187/2004/ND-CP.

d/ For assets used in production and business and invested with welfare fund or reward fund sources, the determination of their value and the division of shares to laborers shall comply with the provisions of Clause 4, Article 10 of Decree No. 187/2004/ND-CP. The shares divided to laborers shall be determined according to the average auction- winning price.

e/ For welfare assets invested with budget capital sources or originating from the budget, if to be-equitized enterprises continue to use them, they shall be accounted into the value of such enterprises.

1.2. Receivable debts

The receivable debts shall be handled according to the provisions of Clauses 1, 2 and 3, Article 11 of Decree No. 187/2004/ND-CP, concretely:

a/ For receivable debts with enough documents evidencing that they are irrecoverable under the State’s current regulations on handling of outstanding debts, the causes thereof and compensation-payment responsibilities of individuals and organizations must be identified according to current law provisions. Losses arising after the handling shall be offset by the enterprises’ bad debt reserves; any deficit shall be accounted into the enterprises’ business expenses.

b/ For other overdue receivable debts, enterprises shall still have to claim or sell them to the Company Purchasing and Selling Outstanding Debts and Assets of Enterprises at agreed prices, but must not sell them directly to the debtors. Losses arising from the sale of debts shall be accounted into the enterprises’ business expenses.

c/ For amounts paid in advance by enterprises to goods suppliers and/or service providers such as house rents, land rents, goods-purchase money, remunerations…, if they have been fully accounted into their business expenses, the enterprises shall compare and account them as expense reduction corresponding to the amounts of goods and/or services not yet supplied or provided or to the remaining lease term and account them as increase of prepaid expenses (or to be-allocated expenses).

1.3. Payable debts

The principles for handling of payable debts shall comply with the provisions of Article 12 of Decree No. 187/2004/ND-CP, concretely:

a/ Payable debts which need not to be paid shall be accounted as State capital increase.

b/ Tax debts and payable State budget remittances shall be handled as follows:

In case of suffering losses, being unable to pay such debts, enterprises shall make dossiers requesting the extension or cancellation of the debts not exceeding the loss amounts accumulated by the time of enterprise valuation according to current regulations.

For enterprises which fully meet conditions for debt cancellation, have filled in the procedures and submitted dossiers therefor but have not yet received debt cancellation decisions by the time their value is decided, the agencies competent to decide on the enterprise value shall consider the temporary reduction of debts or losses so as to determine their value.

Enterprises shall have to further coordinate with finance agencies in debt handling. When receiving handling decisions of the Finance Ministry, if there remains any difference between the actual debt/loss amounts and the temporarily reduced amounts, enterprises shall adjust their financial statements accordingly at the time of their official transformation into joint-stock companies.

c/ For outstanding debts owed to State-owned commercial banks and the Development Assistance Fund:

- In case of suffering losses, being unable to pay overdue debts, enterprises shall carry out procedures for debt freezing, extension or cancellation under current law provisions.

For unpaid loan interests (including compound interests), they shall be considered for cancellation by the State-owned commercial banks and the Development Assistance Fund with amounts not exceeding the remaining loss amounts (after the outstanding tax debts and other State budget remittances are handled).

Within 20 working days after receiving dossiers from enterprises, the lending commercial banks and the Development Assistance Fund shall have to give their handling opinions in writing to the enterprises. If by the time of publicizing their value, enterprises have not yet received the lenders’ handling opinions, they shall be entitled to temporarily exclude the loan interests requested for cancellation from their value for equitization. When receiving debt-cancellation decisions, if there remains any difference compared with the amounts temporarily excluded from their value, enterprises adjust their financial statements accordingly before their official transformation into joint-stock companies.

- The outstanding principals, which are not cancelled, shall be handled as follows:

+ Enterprises shall complete all procedures to transfer them to the inheriting joint-stock companies for payment.

+ They shall negotiate with the lending commercial banks to convert the debts into stock capital.

+ They shall coordinate with the lending commercial banks and the Development Assistance Fund in handling the debts by selling them to the Company Purchasing and Selling Outstanding Debts and Assets of Enterprises at agreed prices.

d/ For guaranteed overdue foreign debts, enterprises and guarantors must negotiate with creditors on schemes for handling according to law provisions on foreign loan and loan repayment management.

e/ For social insurance debts, debts owed to their employees and workers, enterprises shall have to fully repay them before their transformation into joint-stock companies in order to ensure the laborers’ interests.

f/ The conversion of payable debts (including debts payable to laborers) into stock capital in join-stock companies must comply with the State’s regulations on the State’s rights to the first purchase of stocks and to hold dominant shares at enterprises; share prices shall be determined through auction.

1.4. Reserves, losses and profits

The stock-price drop reserves, bad debt reserves, securities price-decrease reserves, exchange-rate difference reserves, job loss severance reserves, financial reserves… as well as losses and profits shall be handled according to the provisions of Article 13 of Decree No. 187/2004/ND-CP, concretely:

a/ The balance of stock-price drop reserves shall be used to offset the difference arising from the stock-price drop decreases (including the decrease arising from the revaluation of stocks at the time of enterprise valuation), the remaining amount shall be accounted into the enterprises’ business results.

b/ The balance of bad-debt reserves shall be used to offset receivable but irrecoverable debts, the remaining amount shall be accounted into the enterprises’ business results.

c/ The balance of reserves for securities price decrease differences shall be used to offset the actual securities price decrease, the remaining amount shall be accounted into the enterprises’ business results.

d/ The balance of exchange-rate difference reserves shall be used to offset arising exchange-rate differences, the remaining amount shall be accounted into the enterprises’ business results.

e/ The job-loss severance reserve fund (to be set up with full deductions according to the prescribed regime) shall be used to pay allowances to laborers redundant in the equitization process. By the time of official transformation of enterprises into joint-stock companies, the remaining amount, if any, shall be accounted into the enterprises’ business results.

f/ The risk reserve fund and professional reserve fund:

- The balance of the risk reserve funds of the State-owned commercial banks shall be handled under the guidance of the State Bank and the Finance Ministry.

- The balance of professional reserve funds of insurance enterprises shall be handled under the guidance of the Finance Ministry.

g/ The financial reserve fund shall be used to offset losses (if any), cover material losses (including the value of unnecessary assets and assets awaiting liquidation, as reflected in accounting books, which is not included in the enterprise value), and irrecoverable debts; the remaining amount shall be accounted into the value of State capital at enterprises.

h/ The arising profits shall be used to offset losses (if any) of preceding years, to cover material losses (including the value of unnecessary assets and assets awaiting liquidation, as reflected in accounting books, which is not included in the enterprise value), make up for the decrease of prices of assets and irrecoverable debts; the remaining amount shall be allocated according to current regulations.

i/ Losses of enterprises shall be offset by the financial reserve fund and pre-tax profits. In case of deficit, the method of cancellation of State budget debts and State-owned commercial banks’ debts under the provisions of Point 1.3, Part B, Section II of this Circular shall apply.

After applying the above-mentioned solutions, if the to-be-equitized enterprises still suffer losses, the agencies deciding on their value shall consider to decrease the State capital thereat.

1.5. Long-term capital investments in other enterprises such as capital contributed to joint ventures, business cooperation, joint-stock companies or limited liability companies and other long-term investments shall be handled according to the provisions of Article 14 of Decree No. 187/2004/ND-CP, concretely:

a/ In cases where enterprises inherit joint ventures, the value of capital contributed to such joint ventures shall be accounted into the enterprise value according to the provisions of Article 20 of Decree No. 187/2004/ND-CP.

b/ For enterprises not inheriting joint ventures, the agencies competent to decide on equitization shall consider and handle as follows:

- To sell the enterprises’ contributed capital portions to other partners or investors. The sale prices must be close to the market prices but must not be lower than the value of the contributed capital portion according to the audited financial statements at the time just before the sale time.

- To assign them to other enterprises to act as partners, after negotiating and reaching agreement with other joint- venture partners.

- In cases where enterprises and joint-venture partners agree to terminate the joint-venture contracts, they shall be handled according to current law provisions on financial handling, applicable to State-owned companies upon termination of operation of joint-venture enterprises.

1.6. The reward fund and welfare fund:

a/ The cash balances of the reward fund and welfare fund shall be divided to laborers on the lists of regular laborers of enterprises at the time of equitization decision for share purchase. The enterprise directors shall decide on such division after reaching agreement with the trade unions.

b/ In cases where enterprises have overspent the reward fund or welfare fund, the deficit shall be accounted as decrease of the actual value of assets currently used for production and business and invested with the reward fund or welfare fund sources. Any deficit shall be handled as follows:

- With regard to amounts already divided directly to laborers on the regular lists at the time of issuance of equitization decisions, enterprises must recover them before selling preferred shares.

- With regard to other amounts such as rejected expenses, gift and donation expenses job-loss and job-severance allowances paid to laborers before the time of equitization decision, enterprises shall report them to the agencies deciding on their value for handling like irrecoverable receivable debts.

2. From the time of valuation of enterprises to the time of their official transformation into joint-stock companies

2.1. The duration for financial handling between these two time points shall not exceed 6 months as from the date of publicization of the enterprise value.

2.2. When receiving decisions publicizing their value, enterprises shall have to:

a/ Adjust accounting books and balance sheets according to the accounting regime prescribed by the State.

b/ Preserve and hand over debts and assets (together with relevant dossiers) which have been excluded from the enterprise value to the Company Purchasing and Selling Outstanding Debts and Assets of Enterprises within 30 days.

c/ Fully account equitization-related expenses.

2.3. Within 30 days after being officially transformed into joint-stock companies, enterprises shall have to make financial statements at the time of being granted business registration certificates and send them to the management agencies according to law provisions on enterprise-finance management regime.

Within 30 days after receiving the financial statements, the agencies competent to decide on the enterprise value shall inspect and handle financial matters arising within the two time points; revalue the State’s capital portion, decide on adjustment of the State capital at enterprises; organize the hand-over between enterprises and joint-stock companies; and send the results of revaluation of enterprises to the Finance Ministry.

2.4. The difference between the actual value of the State capital at the time the State-owned companies are transformed into joint-stock companies and that value at the time of enterprise valuation shall be handled according to the provisions of Article 25 of Decree No. 187/2004/ND-CP. If there appear any negative differences (including differences due to business losses), the objective and subjective causes thereof must be identified before the handling, concretely:

a/ Negative differences arising due to objective causes mean losses caused by natural disasters or enemy sabotage; by changes in the State’s policies or fluctuations of the international market and other force majeure circumstances.

b/ Other cases shall be considered as subjective causes. The equitization-deciding agencies shall not select individuals responsible for the negative difference amounts to act as representatives of the State capital portions at joint-stock companies.

3. Hand-over of assets and capital

Basing itself on decisions to readjust the value of enterprises at the time of their business registration for transformation into joint-stock companies, the Equitization Steering Board shall direct the enterprises to adjust their accounting books, compile hand-over dossiers and organize the hand-over between the enterprises and the joint-stock companies.

3.1. A hand-over dossier set comprises:

a/ The dossier on the valuation of an enterprise and the decision publicizing its value.

b/ The financial statement and final tax settlement report at the time of its official transformation into a joint-stock company.

c/ The decision on the value of the enterprise at the time of its transformation into a joint-stock company.

d/ The minutes on the hand-over of assets and capital at the time of hand-over.

3.2. The hand-over participants shall include:

a/ The representative(s) of the branch-managing ministry or the provincial/municipal People’s Committee and representative(s) of the Finance Ministry (in case of equitization of the whole corporation).

b/ The representative(s) of the corporation, the chairman of the Managing Board (in case of equitization of member enterprises of the corporation), the director, the chief accountant of the State-owned company representing the transferor.

c/ The chairman of the Managing Board, the director, the chief accountant and representative(s) of the trade union of the joint-stock company representing the transferee.

3.3. The hand-over minutes must contain all signatures of the hand-over participants and must clearly indicate:

a/ The state of assets, capital and labor at the time of hand-over.

b/ The interests and obligations of the succeeding joint-stock company.

c/ The problems that the joint-stock company must further deal with.

III. ENTERPRISE VALUATION METHODS

A. ASSET METHOD

1. Asset method is a method of valuing enterprises on the basis of assessing the actual value of all their existing assets at the time they are valued.

2. Subjects of application are to-be-equitized enterprises, except for enterprises, subject to the application of discounted cash flow method prescribed at Point 2, Part B, Section III of this Circular.

3. The book value of an enterprise means the total value of its assets as reflected in its accounting balance sheets.

The book value of the State capital at an enterprise shall be equal to the enterprise’s book value minus (-) the payable debts, the balances of the welfare fund and reward fund and the balance of non-business funds (if any).

4. The actual value of an enterprise means the actual value of all its existing assets at the time it is valued with its profitability taken into account.

4.1. The actual value of an enterprise shall not include:

a/ The value of rented or borrowed assets or assets received as capital contributed to joint-ventures or business cooperation;

b/ The value of unnecessary assets, stockpiled assets or assets awaiting liquidation;

c/ The irrecoverable receivable debts;

d/ The expenses for unfinished capital construction works which have been suspended before the time of enterprise valuation under decisions of competent agencies;

e/ The long-term investments in other enterprises, which are transferred to other partners under decisions of competent agencies;

f/ Assets belonging to welfare works invested with the enterprise’s reward fund or welfare fund sources and dwelling houses of its employees and workers.

4.2. Bases for determining the actual value of an enterprise at the time of valuation:

a/ The data in accounting books of the enterprise;

b/ The quantity and quality of assets based on actual inventory and classification;

c/ The technical properties of assets, the use demands and market prices;

d/ The land use right value and profitability of the enterprise (its geographical location, prestige, product designs and models as well as brands, etc.)

5. Determining the actual value of assets:

The actual value of assets shall be determined in Vietnam dong. Value of assets accounted in foreign currencies shall be converted into Vietnam dong according to the average exchange rates on the inter-bank foreign currency market, announced by the State Bank at the time of enterprise valuation.

5.1. For assets in kind:

a/ To revalue only those assets to be further used by the joint-stock companies.

b/ The actual value of assets = Their historical costs calculated according to the market price (x) the remaining quality of assets at the time of valuation.

Of which:

- The market price means:

+ The price of brand-new assets being traded on the market, covering also transportation and installation costs (if any). For particular assets not available on the market, the purchase price of brand-new assets of the same kind, made in the same country, with the same capacity or the same properties shall be used. In cases where equivalent assets are not available, the price of assets recorded in accounting books shall be used.

+ The capital construction unit price or investment ratio set by the competent body, for assets being capital construction products. In cases where such a price or ratio has not yet been set, the value of final settlement of works, approved by competent authority, shall serve as basis for calculation.

For construction investment works, which have been completed within 3 years before the enterprise valuation: The value of final settlement of the works, already approved by competent authorities, shall be used.

- The quality of assets shall be determined in percentage of the quality of newly-purchased or newly-invested and -built assets of the same kind in accordance with the State’s regulations on safety conditions in the use and operation of assets; the quality of products and environmental hygiene conditions shall comply with the guidance of the economic technical branch-managing ministries. If the State’s regulations thereon are unavailable, the quality of assets shall be valued not lower than 20%.

c/ Fixed assets already fully depreciated; labor tools and managerial instruments whose value has already been fully allocated into business expenses, which, however, shall be further used by the joint-stock companies, must be revalued so as to be included into the enterprise value according to the provisions of Point 5.1 b, Part A, Section III of this Circular.

5.2. Pecuniary assets including cash, deposits and valuable papers (bills, bonds, etc.) of enterprises shall be determined as follows:

a/ Cash shall be determined according to the cashier’s checking minutes.

b/ Deposits shall be determined according to the balances already compared with, and certified by, banks.

c/ Valuable papers shall be determined according to the market transaction prices. In case of no transaction, the par value of the papers shall be used.

5.3. The receivable debts to be calculated into the enterprise value shall be determined according to the actual balance in accounting books, after being handled according to the provisions of Point 1.2, Part B, Section II of this Circular.

5.4. Unfinished expenditures: Capital construction investment, production and business as well as non-business expenditures shall be determined according to the actually arising amounts reflected in accounting books.

5.5. The value of short-term and long-term collateral and deposit assets shall be determined according to the actual balance in accounting books, which have already been compared and certified.

5.6. The value of intangible assets (if any) shall be determined according to their remaining value accounted in accounting books. Particularly, the land use right value shall be determined according to the provisions of Point 6, Part A, Section III of this Circular.

5.7. Value of business advantages

The value of business advantages shall be included in the value of the equitized enterprises according to the provisions of Clause 3, Article 19 of Decree No. 187/2004/ND-CP, of which the value of enterprises’ business advantages shall be determined according to the following formula:

The value of the enterprise’s business advantages

=

The book value of the State capital portion at the time of valuation

x

The average ratio of the after-tax profit to the State capital in 3 years before the time of enterprise valuation

-

The interest rate of the Government bonds of 10-year or longer term at the time just before the enterprise valuation

Of which:

The average ratio of the after-tax profit to the State capital in 3 years before the time of

=

The average after-tax profit in 3 consecutive years just before the time of enterprise valuation

x

100%

The State capital in accounting books in 3 consecutive years just before the time of enterprise valuation

5.8. The value of enterprises’ long-term investments in other enterprises shall be determined according to the provisions of Article 20 of Decree No. 187/2004/ND-CP.

6. Land use right value

The determination of the land use right value for inclusion into the enterprise value shall comply with the provisions of Clause 1 and Clause 2, Article 19 of Decree No. 187/2004/ND-CP, concretely:

6.1. In cases where enterprises apply the form of renting land:

a/ If they are renting land, the land use right value shall not be included into the enterprise value; joint-stock companies shall continue signing land-lease contracts under law provisions and manage and use that land for the right purposes but must not transfer or sell it.

b/ If the land areas have been assigned and received and the land use levies have been remitted into the State budget or the land use rights have been purchased from other individuals or legal persons and the enterprises now shift to rent land, only the expenses that increase the land use value as well as the value of landed assets shall be included into the enterprise value, such as compensation, ground clearance and leveling expenses.

6.2. In cases where enterprises apply the form of land assignment with the collection of land use levies, the land use right value for enterprise valuation shall be determined as follows:

a/ With regard to land areas being rented by enterprises: The land use right value shall be included into the enterprise value according to the prices set by the provincial People’s Committees and shall not be accounted as increase of the State capital at enterprises but as an amount remittable to State budget. The joint-stock companies must remit such money amounts into the State budget in order to be granted land use right certificates. The order and procedures for land assignment, payment of land use levies and grant of land use right certificates shall comply with the provisions of the Land Law and documents guiding the implementation thereof.

b/ With regard to land areas already assigned to enterprises which have paid land use levies to the State budget: It is necessary to revalue the land use right according to prices set by the provincial People’s Committees. The difference between the re-determined land use right value and the book value shall be included into the actual value of the State capital portion at enterprises.

7. Actual value of the State capital portion at an enterprise:

The actual value of the State capital portion at an enterprise is equal to the total actual value of the enterprise minus (-) the actual payable debts, the balances of welfare fund and reward fund and the balance of non-business funds (if any). Of this, the actual payable debts mean the total value of debts payable by the enterprise minus (-) the debts which need not to be paid.

8. Actual value of corporations:

In case of equitization of the whole State corporations, apart from the general provisions, the following guidance must be followed:

8.1. For corporations invested and established under the State’s decisions:

a/ The actual value of an entire corporation includes the actual value of all assets of its office (including dependent cost-accounting units), independent cost-accounting member companies and non-business units (if any).

b/ The actual value of the State capital portion at the entire corporation includes the actual value of the State capital portion at its office, its independent cost-accounting member companies and non-business units (if any).

8.2. For corporations invested and established by the companies themselves:

a/ The actual value of an entire corporation for equitization is the actual value of all existing assets of the parent company.

b/ The actual value of the State capital is the actual value of the State capital at the parent company.

8.3. The valuation of State corporations must strictly comply with the provisions of Part A, Section III of this Circular, with attention being paid to the following points:

a/ A corporation’s capital at one-member limited liability companies transformed from its member companies or set up by the corporation itself shall be determined as a long-term investment of the corporation under the provisions of Article 20 of Decree No. 187/2007/ND-CP.

b/ The value of business advantages of a corporation includes the business advantage value of its office and independent cost-accounting member companies.

The profit and State capital for calculation of the profit ratios shall be determined according to the provisions of the Government’s Decree No. 199/2004/ND-CP of December 7, 2004 issuing the Regulation on mechanism for enterprise-finance management and management of the State capital invested in other enterprises as well as guiding documents of the Finance Ministry.

B. THE DISCOUNTED CASH FLOW METHOD

1. The discounted cash flow (DCF) method is a method of valuing enterprises on the basis of their future profitability.

2. Subject to the application of this method are enterprises involved mainly in financial, banking, trade, consultancy, construction design, informatics and technology transfer services, that have the after-tax profit ratio to the State capital in 5 consecutive years right before equitization higher than the prepaid interest rate of Government bonds of 10-year or longer term at the time just before the time of enterprise valuation.

3. Bases for valuation of an enterprise:

3.1. The financial statements of the enterprise for 5 consecutive years right before its valuation.

3.2. The production and business scheme of the to be-equitized enterprise for 3 to 5 years after it is converted into a joint-stock company.

3.3. The prepaid interest rate of Government bonds of 10-year or longer term at the time next to the time of enterprise valuation and the DCF coefficients applicable to enterprises.

3.4. The value of the land use rights over the assigned land areas.

4. The actual value of the State capital portion at an enterprise shall be determined as follows:

The actual value of the State capital portion

=

å

i = 1® n

Di

+

Pn

+

The difference of the value of the right to use the assigned land

(1 + K)i

(1+ K)n

Of which:

The land use right value difference shall be determined according to the provisions of Point 6.2b, Part A, Section III of this Circular.

Di

is the current value of dividends in the year i

(1 + K)i

Pn

is the current value of the State capital portion in the year n

(1+ K)n

i: is the order of subsequent y

ears as from the year of enterprise valuation (i: 1 ® n).

Di: is the after-tax profit used for distribution of dividends in the year i.

n: is the selected number of future years (3- 5 years).

Pn: is the value of the State capital portion in the year n and shall be determined according to the following formula:

Pn = Dn+1 : (K- g)

Of which:

Dn+1: is the after-tax profit used for the distribution of expected dividends of the year n+1

K: is the necessary discount rate or capital reimbursement rate applied by investors when buying shares and shall be determined according to the following formula:

K = Rf + Rp

Rf: is the ratio of profit gained from the risk-free investments, which is equal to the prepaid interest rate of Government bonds of 10-year or longer term at the time next to the time of enterprise valuation.

Rp: is the risk premium for investment in the purchase of shares from Vietnam-based companies, which shall be determined according to the international equity risk premium index in the valuation directory or by valuating companies for each enterprise but must not exceed the ratio of profit gained from the risk-free investments (Rf).

g: is the annual growth rate of dividends and shall be determined as follows:

g = b x R

Of which:

b: is the percentage of after-tax profit left for capital supplementation.

R: is the after-tax profit ratio to the owners’ average capital of the future years.

5. The actual value of an enterprise at the time of valuation by the DCF method shall be determined as follows:

The actual value of the enterprise

=

The actual value of the State capital portion

+

The actual payable debts

+

The balances of the reward fund and welfare fund

+

Non-business funds

Of which:

The actual payable debts = The total payable debts in accounting books minus (-) The value of debts which need not to be paid plus (+) The land use right use value of the newly-assigned land areas (to be determined according to the provisions of Point 6.2a, Part A, Section III of this Circular).

6. The positive difference between the actual value of the State capital and its book value shall be accounted as a business advantage of enterprises, determined as an intangible fixed asset and depreciated according to current law provisions.

7. For corporations and commercial banks that fully meet the conditions for enterprise valuation by the DCF method, their profits and State capital shall be determined according to current law provisions on financial management of State-owned corporations and commercial banks.

C. OTHER METHODS

Besides the two enterprise-valuating methods mentioned in Parts A and B, Section III of this Circular, the enterprise value-deciding agencies and the valuating organizations may apply other valuation methods after getting written approval from the Finance Ministry.

IV. ORGANIZATION OF ENTERPRISE VALUATION

1. Selection of valuation mode:

The principles for selection of a mode of organizing the enterprise valuation shall comply with the provisions of Article 23 of Decree No. 187/2004/ND-CP.

1.1. Enterprises with the book value of asses being under VND 30 billion shall organize the valuation by themselves or hire consultancy organizations to value them.

In cases where enterprises make valuation by themselves, they must strictly comply with the provisions of Sections II and III of this Circular.

1.2. With regard to enterprises with the book value of assets being VND 30 billion or more, the corporation’s office (in case of equitization of the entire corporation) must hire an organization to determine the enterprises’ value.

2. Hiring of valuating organizations

2.1. Valuating organizations include audit companies, securities companies, price-evaluating organizations and investment banks with valuating function and capability, etc.

2.2. Valuating organizations must meet the following criteria and conditions:

a/ Having the valuating function stated in their business registration certificates or investment licenses.

b/ Meeting the conditions and criteria prescribed by current legislation, depending on their business lines.

c/ Neither sharing the same owners nor having economic relations with the to be-valued enterprises, such as co-partnership, joint-venture or stock capital contribution.

d/ Not directly auditing the to be-valued enterprises.

e/ Not committing law violations in the professional operation process.

2.3. Annually, before December 31, the Finance Ministry shall publicize the list of valuating organizations that fully meet the conditions and criteria for enterprise valuation in the subsequent year. The list of organizations with the valuating function and capability in 2005 is publicized in Appendix No. 3 to this Circular.

Organizations with the valuating function, which violate law provisions, shall be suspended from publicization and be added to the list only when they have redressed their violations.

2.4. Basing themselves on the list of valuating organizations publicized annually, the Equitization Steering Boards shall select valuating organizations and take responsibility for their selection.

2.5. Basing themselves on selection decisions of the Steering Boards, the directors of enterprises shall sign contracts to hire valuating organizations, which must commit to the following specific contents:

a/ The valuation method;

b/ The completion time: Not exceeding 60 days for equitization of an entire corporation and 30 days for other cases.

c/ Responsibilities of enterprises for doing jobs related to valuation such as inventory, asset classification, financial handling, elaboration of production and business schemes, provision of relevant documents… and responsibility for the supplied data and documents.

d/ Responsibilities of the valuating organization for strictly complying with valuation regulations and completing the valuation on time according to the signed contracts and for valuation results under law provisions.

e/ The payment of valuation costs shall be made after the issuance of decisions on publicization of the enterprise value.

2.6. In the course of implementing equitization schemes, valuating organizations shall have to coordinate with enterprises in explaining the valuation-related contents.

3. Enterprise valuation dossiers

3.1. Organizations valuating enterprises shall together with the latter compile enterprise valuation dossiers, each consisting of:

a/ The financial statement and final tax settlement report of the enterprise at the time of valuation.

b/ The report on the results of inventory and valuation of assets of the enterprise.

c/ The minutes on valuation of the enterprise.

d/ The copy of the detailed dossier on matters requested to be handled during the valuation of the enterprise.

e/ Other necessary documents (depending on the application of different methods for enterprise valuation).

3.2. The Equitization Steering Boards shall have to examine the results of valuation, report them to the enterprise value-deciding agencies and the Finance Ministry.

4. Deciding on and publicizing the value of enterprises:

4.1. Within 5 working days after receiving evaluation reports and enterprise valuation dossiers, the enterprise value-deciding agencies shall issue decisions on and publicize the enterprise value.

4.2. By the time enterprises are officially transformed into joint-stock companies, the enterprise value-deciding agencies must definitely handle their financial matters according to the provisions of Point 2, Part B, Section II of this Circular and issue decisions to adjust the enterprise value.

V. FIRST-TIME SALE OF SHARES

A. SHARE PURCHASERS AND STRUCTURE

1. Share purchasers:

1.1. Laborers on the lists of regular laborers of enterprises at the time of equitization decision.

1.2. Strategic investors prescribed in Clause 2, Article 26 of Decree No. 187/2004/ND-CP, that are approved by the equitization-deciding agencies.

1.3. Other investors inside and outside the country, that participate in public auctions according to the provisions of Article 4 of Decree No. 187/2004/ND-CP.

2. Share structure:

2.1. The number of shares to be held by the State shall be determined according to the equitization schemes and be adjusted according to the results of the sale of shares at the time before the official transformation of enterprises into joint-stock companies under decisions of the equitization-deciding agencies.

2.2. The sale of preferred shares is prescribed as follows:

a/ 100 shares/one working year at most shall be sold to each laborer of a State enterprise at a price 40% lower than the average auction-winning price.

b/ 20% of shares at most shall be sold to strategic investors at a price 20% lower than the average auction-winning price.

c/ The total value of preferred shares sold at reduced prices to laborers and strategic investors (to be determined according to par value of shares) shall not exceed the value of the State capital at enterprises after subtracting the value of shares held by the State and the equitization expenses according to the prescribed norms.

2.3. The number of shares sold through public auctions to investors (including strategic investors and laborers, if they purchase more shares) is the number of shares left after the sale of preferred shares, which, however, must not be lower than 20% of the charter capital. In cases where the value of remaining shares fails to reach 20% of the charter capital, such shall be handled as follows:

a/ Issuing more shares to increase the charter capital at the corresponding level.

b/ Reducing the number of shares held by the State at the corresponding level.

c/ Adjusting the number of preferred shares for sale at the corresponding level.

2.4. The total of shares issued for the first time shall be equal to the enterprise’s charter capital divided to (:) the par value of a share (VND 10,000).

a/ The number of shares for sale shall be equal to the total of shares issued for the first time minus (-) the number of shares to be held by the State.

b/ The number of shares for public auction shall be equal to the number of shares for sale minus (-) the number of preferred shares to be sold to laborers and strategic investors.

B. ORGANIZATION OF AUCTION OF SHARES

1. Auctioing modes:

1.1. Direct auction at enterprises, for cases where the total par value of the auctioned shares is VND 1 billion or less, the sale of which is organized by the Equitization Steering Boards.

1.2. Auction at intermediary financial institutions, for cases where the total par value of the auctioned shares is between over VND 1 billion and VND 10 billion or under VND 1 billion, when so demanded. The Equitization Steering Boards shall select and coordinate with intermediary financial institutions in organizing the sale of shares.

1.3. Auction at securities trading centers, for cases where the total par value of the autioned shares is over VND 10 billion or under VND 10 billion, when so demanded. The Equitization Steering Boards shall coordinate with the securities trading cenetrs or intermediary financial institutions in organizing such auction.

The Equitization Steering Boards shall directly register or hire intermediary financial institutions to register the auction at securities trading centers (in Hanoi or Ho Chi Minh City).

1.4. For enterprises in deep-lying areas that are unable to select intermediary financial institutions to organize auctions according to the provisions of Points 1.2 and 1.3, Part B, Section V of this Circular, the equitization-deciding agencies shall notify such to the Finance Ministry for handling guidance.

2. Responsibilities of parties involved in share auction:

2.1. The Equitization Steering Boards must do the following jobs:

a/ To report to the equitization-deciding agencies to issue decisions approving the equitization schemes, containing the reserve prices to serve as basis for auctioning.

b/ To gather all information related to equitization.

c/ To send documents related to equitization and applications for auction organization registration to the securities trading centers (if registering the sale of shares via these centers) or sign contracts with intermediary financial institutions, if selling shares via these institutions.

d/ To coordinate with auctioning organizations in disclosing to investors information related to enterprises and the auction at least 20 days before the date of auctioning.

e/ To sum up and report the auction results.

2.2. The auctioning bodies (enterprises, intermediary financial institutions, securities trading centers) must do the following jobs:

a/ To request the Equitization Steering Boards and enterprises to supply all documents and information on equitization according to regulations.

b/ To notify the Equitization Steering Boards and enterprises of the time and venue of auction.

c/ To publicize at enterprises, auction venues and on the mass media (for one week, in 3 consecutive issues of a central newspaper and a local newspaper of the localities where enterprises are headquartered) information related to the sale of shares for equitization at least 20 days before organizing the auction.

d/ To supply investors and investment promotion organizations with information related to enterprises and the auction as well as application for auction participation registration.

e/ To receive auction participation-registration applications, examine the conditions for auction participation and distribute auction participation tickets to qualified investors.

At least 3 working days before an auction, the auctioning body must send all auction participation tickets to investors.

In cases where investors fail to fully meet the auction participation conditions, the auctioning organizations must notify the investors thereof and return their deposits (if the investors have paid deposits).

f/ Auctioning organizations shall conduct auctions, make minutes and notify the auction results to the Equitization Steering Boards.

g/ The auction-organizing agencies shall have to keep secret bids offered by investors till the publicization of official results.

2.3. Investors participating in auctions must do the following jobs:

a/ To send registration applications, made according to a set form, and papers evidencing their full civil act capacity (for individuals) or legal person status (for organizations) to the auctioning bodies. Foreign investors must comply with the provisions of Clause 2, Article 4 of Decree No. 187/2004/ND-CP.

b/ To fully pay deposits at a level equal to 10% of the value of shares registered for purchase at the reserve price.

c/ The time for submitting applications and making deposits shall be at least 5 days before the date of holding the auction.

d/ To offer bids according to regulations. If they violate regulations, their rights to participate in the auction shall be revoked and their deposits shall not be returned.

e/ To pay money for share purchase in full and on time, if being able to purchase shares.

3. Auctioning:

3.1. An auction shall be conducted when at least 2 qualified investors to participate in it. If this condition is not met, the auction shall not be held and shall be considered unsuccessful.

3.2. The auction shall be conducted as follows:

a/ Casting secret ballots, for auctions held right at enterprises or intermediary financial institutions or securities trading centers. Investors shall inscribe their bids for the registered volume of shares in the auction participation tickets and send them to the auctioning bodies within the time limit prescribed in the auction regulations.

As for auctions at securities trading centers, investors may cast ballots right at the securities trading centers or send them to securities companies being auctioning partners at the securities trading centers.

b/ Offering bids via the Internet, for cases of auction at securities trading centers under regulations of the Finance Ministry.

3.3. Determination of auction results:

a/ The determination of auction results shall comply with the principle of descending bids whereby investors shall purchase shares at their offered bids.

b/ Investors that offer the highest bids shall have the right to purchase the entire share volume already registered according to their offered bids. The remaining shares shall be sold to investors that have offered the next high bids until all shares are sold out.

In cases where investors offer the equal bids but the share volume offered for sale is smaller that the total share volume registered for purchase, the number of shares each investor may purchase shall be determined as follows:

The share volume each investor may purchase

=

The remaining share volume offered for sale

x

The number of shares each investor registers to purchase at equal bids

The total share volume registered by investors to purchase at equal bids

c/ In case of offering bids lower than the reserve prices, investors shall not be entitled to receive back their deposits.

d/ The auction results shall be recorded in minutes to be signed by representatives of the auctioning bodies, the Equitization Steering Boards and enterprises, sent to agencies deciding on the enterprise value, the Finance Ministry, the Equitization Steering Boards, the enterprises and kept at the auctioning bodies.

e/ The auctioning bodies shall have to announce the auction results before the end of auctions to investors.

(The specific steps taken at an auction shall comply with Appendix 12- not printed herein).

4. The Equitization Steering Boards shall direct enterprises to sell shares to laborers and strategic investors according to the approved equitization schemes.

5. Payment of share-purchase money

5.1. Within 15 working days from the date of publicization of auction results, the auctioning bodies and investors (including laborers and strategic investors) shall have to complete the auction purchase and sale and transfer the share-purchase money into accounts of the equitized enterprises.

5.2. The payment for sale and purchase of shares shall be made in Vietnam dong. In cases where shares are purchased in foreign currencies, such currencies must be converted into Vietnam dong at the average exchange rate on the inter-bank foreign currency market, announced by the State Bank at the time of auctioning. The payment shall be made in cash or through account transfer.

5.3. Past the 15-day time limit, if investors (including laborers of enterprises and strategic investors) fail to pay or to fully pay the money amounts for share purchase, the unpaid share volume shall be considered the volumes that investors refuse to purchase and be handled according to the provisions of Point 6, Part B, Section V of this Circular.

6. Handling of unsold share volumes

6.1. In cases where investors (including laborers and strategic investors) do not buy out the share volumes, the remaining shares shall be further sold to other investors participating in auction according to the provisions of Point 3.3, Part B, Section V of this Circular.

6.2. In cases where investors participating in auction do not buy out the share volumes offered for sale, the charter capital and the State capital at enterprises shall be adjusted (except for issuance underwriting).

6.3. In cases where investors participating in auction do not buy out the share volumes they are entitled to buy according to the publicized auction results, they shall not be returned deposit amounts corresponding to the share volumes they refuse to buy.

7. Management of deposits:

7.1. For investors that lawfully participate in auctions but are not entitled to buy shares, the auctioning bodies shall, within 5 working days (after the end of the auction) have to repay them all their deposits.

7.2. For investors that are entitled to buy shares according to the auction results, their deposits shall be accounted into their payable money amounts corresponding to the actual share volumes they shall buy at their bids.

7.3. The deposit money which is not returned to investors shall be transferred by auctioning bodies to enterprises for handling according to regulations on management and use of equitization proceeds.

8. The expenses for auction of shares shall be decided by the Equitization Steering Boards but shall not exceed 10% of the total equitization expenses. In case of auction at securities trading centers, the division of expenses between the centers and intermediary financial institutions shall comply with their mutual agreements.

VI. MANAGEMENT AND USE OF EQUITIZATION PROCEEDS

1. The proceeds from equitization of enterprises shall, after subtracting the equitization expenses (according to the provisions of Point 2, Section VI of this Circular) be managed and used as follows:

1.1. To support enterprises to implement policies toward laborers at the time of equitization decision.

a/ To support payment of allowances to laborers on the lists of enterprises’ regular laborers at the time of equitization decision, who voluntarily leave their jobs and laborers recruited after April 21, 1998 who lose their jobs or terminate labor contracts, of which:

- The allowance level for each laborer shall be determined according to the provisions of Articles 17 and 42 of the Labor Code.

- Enterprises shall have to use their job severance allowance reserve funds (fully set up according to the State’s regulations) for payment of allowances to laborers; any deficit shall be offset by the equitization proceeds.

- The directors of enterprises shall have to:

+ Elaborate plans on allowances for laborers who lose their jobs or leave their jobs and incorporate these plans into the equitization schemes to be submitted to competent authorities for approval.

+ Organize the payment of allowances to laborers according to regulations and make settlements thereof to be sent to the enterprise value-deciding agencies for examination and approval according to current law provisions.

b/ To support the retraining of laborers to be given new jobs in the joint-stock companies:

- The retraining duration shall not exceed 6 months; the maximum support level is VND 350,000/person/month.

- The directors of enterprises shall have to:

+ Elaborate retraining support plans (number of laborers to be retrained, trained jobs, training duration…), to be incorporated into the equitization schemes.

+ Sign contracts with training establishments after the equitization schemes are approved but within 30 days as from the date the enterprises are officially transformed into joint-stock companies.

+ Liquidate contracts, pay training expenses to training establishments, make final settlements of training expenses and report such to the enterprise value-deciding agencies for approval according to current law provisions within 8 months as from the date the enterprises are officially transformed into joint-stock companies.

1.2. In cases where the equitization proceeds are not enough to support enterprises to implement policies toward laborers according to the provisions of Point 1.1, Section VI, the deficit shall be offset as follows:

a/ The corporations shall render supports for cases of equitization of their member companies.

b/ Independent State companies, member companies shall render supports for cases of equitization of their respective sections.

c/ The Finance Ministry’s Enterprise Rearrangement Assistance Fund shall render supports for cases of equitization of independent State companies and corporations (in case of equitization of the entire corporations).

1.3. The remaining amount of equitization proceeds shall be remitted by enterprises as follows:

a/ To the companies, in case of equitization of the companies’ sections.

b/ To the corporations, in case of equitization of member companies.

c/ To the Finance Ministry’s Enterprise Rearrangement Assistance Fund, in case of equitization of independent State companies or corporations.

The remittable money amount shall be determined as follows:

The remittable money amount

=

The value of the State capital at the time of enterprise valuation

+

The difference from share auction

-

The value of shares held by the State

-

The equitization expenses

-

The job loss and severance allowances

-

The training expenses

Of which:

- The retraining expenses shall temporarily be determined according to contracts signed with training establishments. Any surplus arising upon contract liquidation shall further be remitted according to the provisions of this Point.

- The difference resulted from share auction already cleared against the difference from the reduction of prices of preferred shares sold to laborers and strategic investors shall be calculated according to the following formula:

The difference from share auction

=

The volume of sold shares of each kind

x

The actual sale price of shares of each kind

-

VND 10,000

Of which:

+ The volume of sold shares of each kind includes the actual share volume sold to each investor participating in auction and the actual volume of preferred shares sold to laborers and strategic investors.

+ The actual sale price of shares of each kind is the auction-winning price offered by each auction participant-investor; the price of preferred shares for laborers, which is 40% lower than the average auction-winning price; and the price of preferred shares for strategic investors, which is 20% lower than the average auction-wining price.

1.4. The equitization proceeds shall be managed and used as follows:

a/ Independent companies and member companies of corporations shall use them to supplement their business capital and support their equitized sections to continue rearranging labor according to the provisions of Clause 8, Article 36 of Decree No. 187/2004/ND-CP.

b/ Corporations may use them to supplement their business capital and support the post-equitization joint-stock companies to pay allowances to redundant laborers according to the provisions of Clause 8, Article 36 of Decree No. 187/2004/ND-CP.

c/ The Finance Ministry’s Enterprise Reorganization Assistance Fund shall use them for additional investment to supplement capital for enterprises where the State needs to invest capital under current regulations; and to support joint-stock companies and equitized corporations to further settle their redundant labor according to the provisions of Clause 8, Article 36 of Decree No. 187/2004/ND-CP.

2. Equitization expenses are expenses related to the equitization of enterprises from the time of equitization decision till the time of hand-over between enterprises and joint-stock companies.

2.1. Equitization expenses include:

a/ Direct expenses at enterprises:

- The expense for professional training on enterprise equitization;

- The expense for asset inventory and valuation;

- The expense for elaboration of the equitization scheme and the charter on organization and operation of a joint-stock company;

- The expense for public employees’ congresses on the equitization;

- The expense for propagation and publicization of prospectuses of enterprises;

- The expense for organization of the sale of shares;

- The expense for the first-time Shareholders’ Congress;

- Other expenses related to the enterprise equitization.

b/ Costs of hiring auditors and consultants for enterprise valuation and share sale.

c/ The expense for the Equitization Steering Board.

2.2. The total expense level shall be determined according to book value of enterprises, concretely as follows:

+ Not exceeding VND 200 million, for enterprises valued at under VND 30 billion each.

+ Not exceeding VND 300 million, for enterprises valued between VND 30 billion and VND 50 billion each.

+ Not exceeding VND 400 million, for enterprises valued at over VND 50 billion each.

+ In case of equitization of an entire State corporation, the equitization expense estimates shall be incorporated in the corporation equitization scheme.

The general directors or directors of enterprises shall decide on the contents and necessary levels of expense within the above-mentioned limits for the realization of the equitization process and shall be answerable for the legality and validity of such expenses.

In case of equitization of large-sized and complicated enterprises that gives rise to necessary expenses exceeding the maximum limits, the enterprise value-deciding agencies shall take initiative in considering, deciding and reporting them to the Finance Ministry.

Upon the completion of the equitization process, enterprises shall have to settle equitization expenses and report them to the enterprise value-deciding agencies for approval.

VII. POLICIES TOWARD ENTERPRISES AND LABORERS AFTER EQUITIZATION

1. Toward enterprises

1.1. Post-equitization enterprises shall enjoy preferences according to the provisions of Article 36 of Decree No. 187/2004/ND-CP and the State’s current regulations on enterprises.

As for investment preferences, post-equitization enterprises shall take initiative in determining the preference levels according to current law provisions and register them with tax offices (together with copies of decisions approving the equitization schemes and business registration certificates of the joint-stock companies) for handling.

1.2. Joint-stock companies established from equitization of member companies of corporations where the State holds more than 50% of their charter capital, shall still be members of the corporations but shall not have to pay management funds to the corporations.

1.3. Enterprises shall enjoy the State’s funding supports from equitization proceeds and the Fund in support of laborers redundant from reorganization of State enterprises in order to implement policies toward their laborers according to current regulations.

2. For laborers in enterprises

2.1. The preferential regime for laborers shall comply with the provisions of Articles 36 and 37 of Decree No. 187/2004/ND-CP, whereby laborers purchasing preferred shares may freely transfer shares and are not restricted in terms of share-holding time, except for founding shareholders, who shall comply with the company charter.

2.2. The total preference value for strategic investors and laborers in enterprises shall be sourced from added revenues brought about by share auction; any arising deficit shall be offset by the State capital available at enterprises but shall not exceed the State capital amount at enterprises after deducting the value of shares held by the State and equitization expenses.

In case of equitization of an entire corporation with comprehensive cost-accounting, the preference value for laborers and strategic investors of member companies shall be calculated within the actual value of the State’s capital at member companies; the preference value for laborers and strategic investors of the corporation’s office and non-business units shall be calculated within the total actual value of the State’s capital thereat.

VIII. IMPLEMENTATION ORGANIZATION

1. The equitization shall follow the steps specified in Appendix 1 enclosed herewith, including the following basic steps:

Step 1: Scheme elaboration

a/ To set up the Equitization Steering Board and its assisting group.

b/ To prepare dossiers and documents.

c/ To handle financial matters and organize the enterprise valuation.

d/ To finalize the equitization scheme.

Step 2: Organization of the sale of shares

a/ To sell shares.

b/ To adjust the equitization scheme.

Step 3: To complete the transformation of enterprises into joint-stock companies

a/ To organize shareholders’ general assemblies and business registration.

b/ To organize hand-over between enterprises and joint-stock companies.

The above-mentioned steps must be completed within 9 months. Past this time limit, the equitization-deciding agencies shall bear responsibility for all arising expenses.

2. Responsibilities of relevant agencies

2.1. The equitization-deciding agencies and the enterprise value-deciding agencies shall exercise their rights and perform their responsibilities according to the provisions of Clause 1, Article 40 of Decree No. 187/2004/ND-CP.

2.2. The Managing Boards of the State corporations shall exercise their rights and perform their responsibilities according to the provisions of Clause 2, Article 40 of Decree No. 187/2004/ND-CP.

2.3. The Enterprise Equitization Steering Board:

a/ To assist the equitization-deciding agencies in directing and organizing the equitization of one or a number of enterprises. The rights and obligations of the Steering Board shall be prescribed by the equitization-deciding agencies.

b/ The membership of the Steering Board shall not exceed five (5), consisting mainly of:

- A leader of the equitization-deciding agency (or the authorized persons) as the head of the Board.

In case of equitization of an entire corporation, the leader of the concerned ministry or provincial/municipal people’s Committee shall be the head.

- The representatives of the leaderships of functional units of the equitization-deciding agency as members of the Board.

- The representative(s) of the leadership of the Finance Ministry (for equitization of the entire corporation) as members of the Board.

- The leadership of the equitized enterprise (the Managing Board, the general director, director or authorized persons) as members of the Board.

The membership and membership structure of the Steering Board shall be decided by the head of the equitization-deciding agency.

c/ The assisting group of the Steering Board:

- The Equitization Steering Board shall set up an assisting group, consisting of no more than five (5) persons to assist it in performing jobs related to the enterprise equitization.

- The assisting group is composed of:

+ A leader of the enterprise as the head of the group.

+ The chief accountant or head of the accountancy section as group member.

+ The heads and deputy heads of the functional sections/divisions as group members.

In case of equitization of dependent units of State companies, the leaders of those units must participate in the assisting groups.

The membership and membership structure of the assisting group shall be decided by the head of the Equitization Steering Board.

d/ The expenses for operation of the Steering Board and its assisting group shall be included into the equitization expenses. Its members shall enjoy an allowance of no less than VND 500,000/person/month, which, however, shall not exceed their respective basic wages. The concrete levels shall be decided by the head of the Steering Board.

3. Handling of a number of problems arising before the effective date of Decree No. 187/2004/ND-CP (December 10, 2004)

3.1. Enterprises with their equitization schemes already approved before December 10, 2004 shall not have to adjust such schemes. Particularly, the share auction shall comply with the provisions of Part B, Section V of this Circular.

3.2. Enterprises with their value-publicization decisions issued before December 10, 2004 shall not have to re-determine their value but shall have to elaborate equitization and share sale schemes according to the provisions of Decree No. 187/2004/ND-CP and this Circular.

3.3. By December 10, 2004, the balance of the funds for reorganization and equitization of State enterprises in the provinces and centrally-run cities and State corporations shall be handled as follows:

a/ Corporations may use it for their business activities in strict compliance with the current regulations on management of the State capital.

b/ The provinces and centrally-run cities may use it to supplement business capital to enterprises where the State needs to hold 100% capital. The specific support level for each enterprise shall be decided by the provincial/municipal People’s Committees. Such balance must not be used for other purposes.

3.4. The provincial/municipal People’s Committees; the Managing Boards of corporations shall direct the elaboration of final settlement reports on the management of the use of the funds for reorganization and equitization of State enterprises since the establishment thereof and send them to the Finance Ministry before March 31, 2005 for sum-up reports thereon to the Prime Minister.

4. This Circular takes effect 15 days after its publication in the Official Gazette and replaces the Finance Ministry’s Circular No. 76/2002/TT-BTC of September 9, 2002, Circular No. 79/2002/TT-BTC of September 12, 2002, Circular No. 80/2002/TT-BTC of September 12, 2002 and other documents guiding the implementation of the Government’s Decree No. 64/2002/ND-CP of June 19, 2002 on the transformation of State enterprises into joint-stock companies.

Any problems arising in the course of implementation should be reported to the Finance Ministry for settlement.

For the Finance Minister

Vice Minister

LE THI BANG TAM

Appendix 1

(Issued together with the Finance Ministry’s Circular No. 126/2004/TT-BTC of December 24, 2004)

PROCESS OF TRANSFORMATION OF STATE-OWNED COMPANIES INTO JOINT-STOCK COMPANIES

The process of transformation of State-owned companies into join-stock companies covers the following steps:

Step1. Elaborating an equitization scheme

1. To set up the Equitization Steering Board and its assisting group.

1.1. The equitization-deciding agency shall issue a decision to set up the Equitization Steering Board simultaneously with the equitization decision.

1.2. The head of the Steering Board shall select members of, and issue a decision to set up, the assisting group within 5 working days as from the date of issuance of its establishment decision.

2. To prepare dossiers and documents:

Within 10 working days after the issuance of the decision on setting up the equitization-assisting group, the Steering Board shall have to direct the assisting group to join the enterprise in:

2.1. Choosing methods and forms of enterprise valuation, choosing time for enterprise valuation, suitable to the enterprise’s conditions and guiding documents related to equitization.

2.2. Preparing all the following documents:

- The legal dossiers on the establishment of the enterprise.

- The legal dossiers on assets of the enterprise (including the assigned or leased land areas).

- The dossiers on debts (particularly outstanding debts and debts already handled according to regulations before the time of enterprise valuation).

- The dossiers on unnecessary assets, supplies and goods in stock, degraded or of poor quality (if any), assets formed from the reward fund or welfare fund.

- The dossiers on unfinished capital construction works (including works subject to suspension decisions).

- The dossiers on long-term investments in other enterprises such as capital contributed to joint-ventures, joint-stock companies, limited liability companies or other forms of long-term investment.

- The financial statements and final tax settlement reports of the company by the time of valuation.

- The list of regular laborers working at the company by the time of issuance of the equitization decision; the classification of laborers as laborers working under indefinite contracts, laborers working under 1-3 year contracts, redundant laborers, etc.

- The estimates of equitization expenses under the prescribed regime.

3. To conduct inventory, handle financial matters and organize the valuation of the enterprise:

The assisting group and concerned enterprises shall coordinate with the consultancy organization (if any) in:

3.1. Inventorying and classifying assets and conducting financial settlement, tax settlement, coordinating with relevant agencies in handling financial matters by the time of valuation of the enterprise.

3.2. Valuating the enterprise:

The Equitization Steering Board shall select a valuating organization to assign the enterprise to sign a valuation contract or assign the assisting group and the enterprise to value the enterprise by themselves.

In cases where the consultancy organization has the valuating function, it may be hired under a package contract so as to elaborate the equitization scheme, valuate the enterprise and organize the sale of shares.

3.3. The Steering Board shall examine the results of asset inventory and valuation and the results of valuation of the enterprise, and report them to the enterprise value-deciding agency and the Finance Ministry.

The time limit for completion of all these jobs shall not exceed 50 working days as from the date of complete preparation of dossiers and documents.

3.4. Deciding and publicizing the enterprise value:

Within 5 working days after receiving the report from the Equitization Steering Board, the enterprise value-deciding agency shall have to issue decision to publicize the value of the to-be- equitized enterprise.

4. To finalize the equitization scheme:

4.1. Elaborating the equitization scheme:

Based on the current regulations and the actual situation of the enterprise, the Steering Board shall consider to decide on the hiring of a consultancy organization or assign the assisting group and the enterprise to work out an equitization scheme with the following principal contents:

a/ The introduction about the company, including brief description of its establishment and organizational model; the situation and results of its production and business activities for 3 to 5 consecutive years before equitization.

b/ The assessment of the actual situation of the company at the time of valuation, including:

- The actual conditions of assets (including the assigned or leased land areas).

- The financial situation and debts.

- The labor situation.

- The matters for further handling.

c/ The labor rearrangement scheme:

- The number of laborers on the list of regular laborers at the time of issuance of the equitization decision.

- The number of laborers to be further recruited.

- The number of redundant laborers and the handling scheme for each subject (including the scheme for retraining of redundant laborers to be given new jobs in the joint-stock company).

d/ The production and business scheme for 3 to 5 subsequent years, which clearly states:

- The scheme on restructuring the enterprise upon its transformation into joint-stock company: reorganization of sections of the enterprise, renovation of business lines; investment in technology renovation and raising of production and business capacity.

- The production and business plan on products, productivity, market, profits… as well as solutions on capital, raw materials, production organization, labor and wages…, for the subsequent years.

e/ The equitization scheme:

- The form of equitization and charter capital according to production and business requirements of the joint-stock company.

- The projected structure of charter capital: the number of shares to be held by the State, the number of preferred shares to be sold to strategic investors (listed), the number of preferred shares to be sold to laborers (enclosed with the list of laborers registering to purchase shares) and the number of shares expected to be sold to other investors.

- The mode of share issuance according to regulations (direct auction at the company or auction at an intermediary financial institution, or auction at a securities trading center).

f/ The draft charter on organization and operation of the joint-stock company in accordance with the provisions of the Enterprise Law and current legal documents.

4.2. Finalizing the equitization scheme.

a/ Based on the decision to publicize the value of the to be-equitized enterprise, the assisting group shall, together with the enterprise, coordinate with the consultancy organization (if any) in finalizing the equitization scheme and send it to each section of the company for study before organizing the (extraordinary) conference of public employees.

b/ Organizing the (extraordinary) conference of public employees to gather opinions for finalization of the equitization scheme.

c/ After the conference of public employees, the assisting group and the enterprise shall coordinate with the consultancy organization (if any) in finalizing the equitization scheme to be submitted to the competent agency for approval.

d/ The Steering Board shall appraise the equitization scheme and report it to the equitization-deciding agency for approval.

The time limit for finalization of the contents prescribed at Point 2.1 of this Step 4.2 shall not exceed 20 working days as from the date of issuance of decision publicizing the value of the to-be-equitized enterprise.

4.3. Approving the equitization scheme

The equitization-deciding agency shall consider and issue a decision approving the equitization scheme within 5 working days after receiving the report from the Steering Board.

Step 2. Organizing the sale of shares

1. The Equitization Steering Board shall select a mode of selling shares according to regulations

2. Organizing the sale of shares:

The Equitization Steering Board and the enterprise shall organize the auction of shares to investors and at the same time, determine the average auction-winning price for the sale of shares to laborers and strategic investors.

b/ With regard to the sale of shares at an intermediary financial institution:

- The Steering Board shall select an intermediary financial institution and assign the enterprise to sign a contract with it.

- The Steering Board and the enterprise shall coordinate with the intermediary financial institution in selling shares according to regulations.

- The Equitization Steering Board shall direct enterprises to sell shares to laborers and strategic investors.

c/ For cases of selling shares at a securities trading center

The Equitization Steering Board has the right to register directly or hire an intermediary organization to register and coordinate with the securities trading center in the sale of shares.

In case of registering directly with the securities trading center, the Equitization Steering Board and the enterprise shall:

- Submit the registration application and documents to the securities trading center.

- Coordinate with the securities trading center in organizing the issuance of shares.

- Sell shares to laborers and strategic investors.

3. Summing up the results of the sale of shares for reporting thereon to the equitization-deciding agency.

4. Reporting cases of not selling shares to subjects in strict compliance with the approved equitization scheme to the equitization-deciding agency for its decision to adjust the volume and structure of shares of the to be-equitized enterprise.

Step 3. Completing the transformation of the enterprise into a joint-stock company

1. The first shareholders’ general assembly

The Equitization Steering Board shall direct the assisting group and the enterprise to organize the first shareholders’ general assembly for adoption of the organization and operation charter, the production and business scheme, election of the Managing Board, the Control Board and the executive apparatus of the joint-stock company.

2. On the basis of the first shareholders’ general assembly, the Managing Board of the joint-stock company shall make business registration, return the seal of the former enterprise and apply for a new seal for the joint-stock company.

3. To make a financial statement when the business registration certificate is granted for the first time to the joint-stock company, conduct final tax settlement and equitization expense settlement, and report thereon to the equitization-deciding agency.

To remit the equitization proceeds to the company, the corporation or the Finance Ministry’s Enterprise Reorganization Assistance Fund.

4. The joint-stock company shall buy or print share certificates to be issued to shareholders according to current regulations.

5. To organize the inauguration of the joint- stock company and make announcement thereon on the mass media according to regulations.

In cases where the enterprise is determined to be immediately listed on the securities market, it must compile a dossier of application for listing and send it to the Finance Ministry (the State Securities Commission) according to current regulations.

6. To organize the hand-over between the enterprise and the joint-stock company.

In the course of implementation, the equitization-deciding agencies, the Equitization Steering Boards, the assisting groups and enterprises may simultaneously conduct several steps so as to speed up the equitization of State-owned companies.-

Appendix 3

(Issued together with the Finance Ministry’s Circular No. 126/2004/TT-BTC of December 24, 2004)

LIST OF SECURITIES COMPANIES AND AUDITING ENTERPRISES ALLOWED TO PROVIDE SERVICES OF VALUATION OF TO-BE-EQUITIZED ENTERPRISES

I. Securities companies, fund-managing companies:

1. Bao Viet Securities Joint-Stock Company

2. The Securities Limited Liabilities Company of the Investment and Development Bank

3. Sai Gon Securities Joint-Stock Company

4. De Nhat Securities Joint-Stock Company

5. Thang Long Securities Company Ltd.

6. ACBS Securities Company Ltd.

7. The Securities Company Ltd. of the Industrial and Commercial Bank

8. The Securities Company Ltd. of the Agricultural and Rural Development Bank

9. The Securities Company Ltd. of the Bank for Foreign Trade of Vietnam

10. Hai Phong Securities Joint-Stock Company

11. Me Kong Securities Joint-Stock Company

12. Ho Chi Minh City Securities Joint-Stock Company

13. The Securities Company Ltd. of the East Asia Bank

14. The Joint-Venture for Management of Vietnam Securities Investment Fund.

II. Auditing companies:

1. Vietnam Auditing Company Ltd. (VACO)

2. Auditing and Accounting Financial Service Company (AASC)

3. Ernst & Young-Vietnam Company Ltd. (E&Y)

4. Auditing and Informatic Service Company (AISC)

5. Price WaterhouseCoopers Company Ltd. (PwC)

6. KPMG-Vietnam Company Ltd.

7. Auditing and Consulting Joint-Stock Company (A&C)

8. M&H Auditing Company Ltd.

9. SGN Financial - Accounting Consultancy and Auditing Partnership Company

10. Accounting and Auditing Company (AAC)

11. Price WaterhouseCoopers - AISC Company Ltd. - (PwC-AISC)

12. Hanoi Auditing and Accounting Company Ltd.

13. Vietnam Auditing and Evaluation Joint-Stock Company (VAE)

14. Auditing and Consulting Company Ltd. (ACPA)

15. International Auditing and Financial Consultancy Company Ltd. (IFC)

16. Sai Gon Auditing and Financial-Accounting Consultancy Company (AFC)

17. AS Auditing Company Ltd.

18. Tien Phong Administration Company Ltd.

19. DTL Auditing Company Ltd.

20. Dat Viet Auditing and Consultancy Joint-Stock Company

21. COM.PTAccounting, Financial, Tax and Auditing Consultancy Company Ltd.

22. DNP Auditing and Financial Consultancy Company Ltd.

23. Auditing Partnership-Vietnam Company

24. Grant Thornton-Vietnam Company Ltd.

III. Price evaluating organizations

- The Price Evaluation Center and the Southern Information and Price Evaluation Center under the Finance Ministry

- Domestic and foreign investment banks (multifunctional banks), Vietnam-based foreign financial institutions with the valuating function.-